The full version of the National Strategic Development Plan (PEDN) was only made public in July 2011 (follow this link for more about it), but the April 2010 draft was never officially circulated. However, La'o Hamutuk obtained the "Final Draft" given to a few state leaders in May 2010, which we scanned and posted on this website. It has more than 300 pages, nearly 80 tables and more than 60 figures, representing a large editing and compilation task.

Unfortunately, the content is not as impressive as the appearance. The Summary presents an "inspirational outlook" of a prosperous Timor-Leste in 20 years, with no illiteracy, water supply infrastructure, primary health care and secondary education for all, national wireless broadband, and no poverty. But the draft plan itself, which is often inconsistent with the Summary, gives scant specifics about how Timor-Leste will achieve this inspiring vision.

On 19 April 2010, the Prime Minister began "consulting" Timorese people across the country about the plan, beginning in the far eastern subdistrict of Tutuala, and going to every subdistrict (schedule). The final consultation was held in Laulara, Aileu district, on 11 September. La'o Hamutuk attended the Laulara socialization and made this slide show.

Although the Prime Minister's journey has stimulated much excitement and debate -- including about whether this marks the start of the 2012 election campaign -- the plan itself has received little scrutiny or analysis. La'o Hamutuk hopes that this and other pages on our website will help people understand its contents and decide for themselves whether they are desirable and achievable, given Timor-Leste's current situation and the human and material resources available.

On 25 June, acting head of UNMIT and UNDP Resident Representative Finn Reske-Neilsen wrote a letter to the Prime Minister commenting on the summary of the Strategic Development Plan, and encouraging more attention to agriculture, the rural poor, stimulating foreign investment, protecting the local environment, gender equality and other topics.

In early August 2010, Timor-Leste made the final $2.5 million payment on a $2,981,680 contract signed on 1 September 2009 by the Prime Minister Xanana Gusmão and the Surabaya company PT DSI Makmur Sejahtera for "Strategic Development Plan Consulting Services." The contract included six deliverables: Strategic Development Plan, National Spatial Plan, Infrastructure Strategic Framework, Suai Detailed Spatial Plan, Dili Detailed Spatial Plan and Dili Urban Design Guideline.

La'o Hamutuk has obtained photocopies of several documents relating to this payment and contract which we are making available here, as follows:

In November 2010, the Government submitted a $985 million budget to Parliament for 2011, including $317 million for a new Infrastructure Fund to begin implementation of the PEDN. During 2012-2015, the Government proposes to add $2.5 billion more to the Fund. In our submission to Parliament on the budget, La'o Hamutuk urged the Deputados not to create the Infrastructure Fund until the Strategic Development Plan has been adopted by Parliament. Parliament added $321 million and approved a $1.3 billion budget in January, including $599 million for the Infrastructure Fund which will be used to implement the SDP.

The IMF Staff Report released in March 2011 often refers to the Strategic Development Plan, while noting that "details have to be worked out and administrative capacity constraints hamper public investment management."

The SDP is foreshadowed in an March 2011 update from the World Bank ("The 2011 budget provides a strong indication of priorities for the government’s upcoming Strategic Development Plan. The government envisages a heavily frontloaded investment strategy to address major infrastructure, skills, and other structural gaps. The objective is to create the conditions to generate a strong private sector supply response. This will depend critically on the prioritization and quality of investment, but also on absorptive capacity, both macroeconomic and administrative."). In February, the ADB reported that "Key initiatives to achieve competitiveness are provided by the Strategic Development Plan 2011–2030", although they had not seen it yet.

The elusive plan was a central focus of the Aid Effectiveness consultation process in Dili in March and April. As the draft Country Paper circulated by the Ministry of Finance says, "the Government has identified a new national vision and prepared a longer term Strategic Development Plan (SDP) to address the changing nature of development challenges. ... The success of the much-heralded Strategic Development Plan (SDP), likely to be launched in July 2011, depends in part upon a satisfactory global economic and geopolitical environment. ... The SDP will present all stakeholders with the first multi-year planning document since emerging from the crisis of 2006. While this development is a welcome one, there was general consensus that the Government had taken a long time to produce the plan. The Government has responded by saying that throughout Timor-Leste’s short history and based on experiences in other fragile states, attempts to devote precious resources (both financial and human) to developing medium-long planning frameworks has resulted in a premature focus away from addressing short term sources of conflict toward longer term development. The Government remains confident it has the timing right." La'o Hamutuk's May comments on the draft Country Paper urged longer-term planning and highlighted that the SDP "cannot free Timor-Leste from fragility."

On 6 April, the Ministry of Finance issued a revised Request for Expressions of Interest to select a company to conduct procurement planning, process, management, capacity building, support during construction for large-scale contracts under the Infrastructure Fund. The document states that "The ADN is being set up to carry out this project appraisal role, but it and the Procurement Commission have not yet been formally established and delays have occurred in implementation of many of the projects that were supposed to be launched in 2010 and 2011. Therefore award of the Procurement Firm contract is now a top Government priority and firms interested in competing for this contract should do everything they can to mobilize their teams as quickly as possible after the award decision is announced."

The rest of this page discusses some issues that La'o Hamutuk highlighted in the rough draft of the plan which leaked in mid-2010. Some of the points have been fixed or obfuscated in the final draft, but not all of them.

We welcome input and suggestions about how to make this analysis more accurate, relevant and useful.

Click on either diagram below to see it larger.

The first figure is from page 2-3 of the Strategic Development Plan. It uses a "logarithmic" vertical scale, which makes large numbers appear smaller and small numbers appear larger.

The second figure, drawn by La'o Hamutuk based on the same data, uses a more understandable linear scale. In this case, every dollar adds the same height to each bar, regardless of the total size of the bar. The non-petroleum revenue components are so small as to be almost invisible.

1. Underestimating Timor-Leste's dependency on Petroleum Revenues

As La'o Hamutuk has often written, Timor-Leste is by far the most petroleum-dependent country in the world. This is not because we have a lot of oil and gas, but because the rest of our economy is so small. In our submission on the 2010 General State Budget, La'o Hamutuk explained that Domestic Revenues for 2010 will actually be less than $46.1 million, rather than the $87.2 million projected by the Government. The difference is largely because the Government counts as revenues taxes paid by one ministry to another, gross income from selling rice which the government purchased at a higher price than it is sold for, and gross revenues from the electricity and ports agencies which operate at a loss. If these losses are taken into account, the actual domestic revenues projected in the 2010 budget are negative $18.2 million. However, the discussion which follows uses the Government's inflated numbers -- Timor-Leste's dependency on petroleum is so severe that this makes little difference.

The first diagram in the Strategic Development Plan, shown at the right, shows the components of State Revenue from 2002 through 2009. However, it uses a "logarithmic" vertical axes which distorts the relationship between small and larger numbers. La'o Hamutuk has re-drawn the graph with a linear axis, more accurately showing the true extent of Timor-Leste's dependency on Petroleum Revenues, which comprised 94% of total state revenues during the first eight years of independence, according to Government figures.

The table below shows the numbers which were used to generate these graphs. We hope that policy-makers will base their decisions on the numbers, and understand the urgency of strengthening Timor-Leste's non-petroleum economy, which will result in increased domestic revenues, before the oil runs out in 15 years or less.

2002

2003

2004

2005

2006

2007

2008

2009

Total 2002-2009

Petroleum Revenue

0.1

10

175

336

611

1258

2400

1598

6388

Domestic Tax

19

21

25

28

27

31

37

53

241

User Charges and Fees

1

3

5

4

3

4

6

8

35

Interest & Rice Sales

0.1

0.1

0.1

5

4

6

18

22

56

Autonomous Agencies

4

6

7

8

7

7

8

9

56

Total revenues

25

40

212

381

652

1307

2470

1689

6775

Percent from Petroleum

0.4%

25%

83%

88%

94%

96%

97%

95%

94.3%

2. Burning natural gas, and selling it too

La'o Hamutuk believes that Timor-Leste should get the maximum benefits from the oil and natural gas in the Greater Sunrise field, which may involve bringing it to our South Coast by a pipeline, even though the international petroleum companies with the contracts for that field prefer to liquefy the gas at a floating LNG facility, rather than piping it to either Timor-Leste or Australia. The Strategic Development Plan, however, assumes that the Sunrise gas will be brought to Timor-Leste, and we make the same assumption for the purposes of this discussion.

Page 15 of the Summary saysTimor-Leste will develop a modern power grid linking the entire country with at least 1 Giga-Watt, 1GW (1,000 megawatts) of installed power capacity by 2020. The power grid will connect all districts, and will draw on the country’s natural gas resources to power much of the national system.and page 20 says:Power: the national power grid will be completed by 2015, linking all cities and district capitals. The power system will rely mainly on petroleum, initially heavy liquids but then transitioning to natural gas when the gas pipeline reaches Timor-Leste. Alternative energy sources including solar, wind, geothermal, and hydro will be incorporated into the national grid. The government will install at 1 GW by 2020.

How much gas does it take to generate a gigawatt?

Although Timor-Leste will have one GW of generating capacity, we assume that on average, about half of it will be producing electricity (50% average capacity), for a total of 4,383 gigawatt-hours (GWh) generated each year.

The most efficient technology is a gas turbine combined-cycle system, which will be around 50% efficient. (Heavy oil generators converted to use to gas would be less efficient, but we'll optimistically assume 50%.) Generating 4,383 GWh of electricity, at 50% efficiency, will use 29 billion cubic feet of natural gas each year.

If the generators run for 30 years, the expected lifetime of the Sunrise project, they will consume 0.87 Trillion Cubic Feet (tcf) of natural gas.

If Timor-Leste intends to use gas from Sunrise as fuel to supply a gigawatt of electrical generation capacity, this will consume nearly two-thirds of Timor-Leste's share of the Sunrise upstream project. Gas which is burned to generate electricity is not available to be liquefied and exported to generate revenue.

Operating a gigawatt of electric generating capacity for 30 years will require 0.87 trillion cubic feet (tcf) of natural gas, as calculated in the box at right.

How Sunrise gas will be divided

Woodside estimates that Greater Sunrise contains 5.13 tcf of recoverable natural gas. According to La'o Hamutuk's analysis of the economics of the upstream project, this is divided as shown in the graph at left. Timor-Leste will receive dollars or gas equivalent to 1.33 tcf.

If Timor-Leste's share of the gas was all exported and sold, it would bring in about $15 billion to Timor-Leste from the upstream Sunrise project. However, if we use 0.87 tcf of the gas to generate electricity, that reduces our revenues by nearly $10 billion.

The Sunrise field is 20% inside the Joint Petroleum Development Area (JPDA) and 80% in waters claimed by Australia. Timor-Leste can take 18% of its 50% share of government revenues (90% of the take from the JPDA) as 0.48 tcf of gas. The remaining 32% would be cash payments from Australia to Timor-Leste as defined by the CMATS Treaty, totaling $9.6 billion.

To fuel a gigawatt of generating capacity, Timor-Leste would have purchase back 0.39 tcf more of Sunrise gas with some of the money from Australia. Without considering company profit or processing costs, this would cost $4.4 billion.

The Strategic Development Plan assumes that Timor-Leste will take most or all of its share of Sunrise as gas, which will require cooperation from Australia and the Sunrise Joint Venture companies. If this can be worked out, it could also enable Timor-Leste to use some of the gas as feedstock for local industries and other activities.

The Strategic Development Plan assumes that upstream petroleum revenues will "rise to $2 billion per year by 2030" with very optimistic assumptions about oil fields yet to be discovered. However, if we burn most of our natural gas from Sunrise, how can this be possible?

You can't have your cake and eat it too.

Planning for one gigawatt of electrical generating capacity for Timor-Leste raises another interesting question. Taking the 50% utilization discussed above, divided among the two million Timorese citizens we will have in 2030, indicates electric use of 2,200 kwh/person/year, which is about the same as Brazil, Thailand or China. It is four times as much as Indonesia and twice as much as Fiji, Ecuador or Cuba.

If Timor-Leste did generate this much electricity and sold it at current EDTL rates of 12.5c/kwh (which cover about 1/4 of today's generation and distribution of costs), the average six-person Timorese household would have to pay $137/month for electricity. If everyone paid, the state could recover much of the revenue lost by burning the gas.

A closer look at that document sheds some light. The figures listed the Strategic Development Plan come from the table at right, taken from page 5 of the World Bank report. We can see that 85% of Timor-Leste's wealth is non-renewable petroleum resources, which can be used only once. Timor-Leste lags far behind Indonesia and Malaysia in renewable wealth such as farmland and forests, and especially in "produced capital" (infrastructure and industry) . The World Bank report explains this in the following text which accompanies this table, and includes more detail in Appendix A.

Timor-Leste total wealth per capita is among the highest in the region. Natural resources can be valued by taking the present value of resource rents over an assumed lifetime and calculating the net present value of such rents using a discount rate—in this case, 4 percent). Using this method, Timor-Leste’s total wealth per capita ($56,000) is more than three times higher than the average for the region and is comparable to upper middle-income countries like Malaysia.

The Timorese wealth is mainly composed of nonrenewable natural resources wealth. The definition of total wealth used in this report includes not only produced capital, but also natural and intangible capital. Timor-Leste wealth is mainly composed by oil and natural gas reserves (85 percent). Forestland and agricultural land correspond to 3 percent and 2 percent of total wealth respectively. (See Figure 2.1.)

The management of nonrenewable natural resources represents a significant challenge for the country. Since most of the wealth consists of natural assets and mainly nonrenewable natural resources, this represents a peculiar challenge for the country economic management. In order to sustain and increase per capita consumption levels over time, it is necessary to have nondeclining wealth. From a practical perspective, this calls for natural resource rents to be invested rather than consumed. The Petroleum Fund established in 2005 has this very objective, as it allows oil wealth to be transformed into financial wealth and preserves the value of Timor-Leste’s petroleum wealth for future generations. The fund held assets of $4.8 billion as of March 2009.

La'o Hamutuk agrees that Timor-Leste's leaders should project an optimistic vision for this nation's future. However, that vision, especially when it is described by a national plan offered as a "Bible" for current and future governments, needs to be grounded in reality. If we confuse analysis with public relations, future generations will suffer from broken promises, built on sand.

4. Borrowing more than $5 billion

The Government proposes to achieve the Plan's ambitious goals by spending more than $1 billion in 2012, increasing every year to $2.2 billion by 2020 (click on double graph at near right). This is more than twice as much as the Estimated Sustainable Income from the Petroleum Fund, and will create annual spending gaps every year. Table 2.7 (page 2-22) anticipates spending gaps totaling nearly $6 billion by 2020 (see far right graph), presumably to be financed by borrowing. As the plan says (emphasis added) "The government is currently exploring options towards funding strategic public investments including withdrawing in excess of the ESI or borrowing at concessional rates."

After 2020, very optimistic projections of growth in non-oil GDP and state revenues are expected to provide enough income, although debt repayment appears not to be considered in the plan's budgets.

The draft Strategic Development Plan (page 1-15) includes using State land for "public and private investment such as tourism or petroleum development." The government also intends (pages 4-38, 4-39) to claim and manage 12,000 hectares of agricultural land formerly owned by the Indonesian and Portuguese regimes, which had forcibly moved many families there. Thousands of small-hold farmers depend on this land for their food, shelter and livelihoods. If the State leases this land to companies or charges rents that people cannot afford, these families will no longer be able to support themselves.

One example shows how people will be affected

In 2005 the government agreed to lease 3,000 hectares of land which had been plantations owned by the Portuguese company SAPT to the company Timor Global for 50 years. This Fatu Besi plantation area provides food, livelihoods and/or homes for approximately 16,000 people in 5 sucos. Today Timor Global uses approximately 100 hectares of this land, and intends to expand.

Land laws currently being enacted give the State the power to control large areas of this land, although the Ermera Agricultural Workers’ Union (UNAER) and other groups advocate for farmers’ rights to this land.

The draft Strategic Development Plan also proposes (pages 4-197 to 4-201) to resettle families to farm rice in areas with newly rehabilitated irrigation and other facilities. The government will offer two hectares of land to each household, hoping to attract 5,000 families to eight districts. Land will also be offered in three other districts, including Covalima, which had a large agricultural and transmigration area before 1999. During the occupation the Indonesian government resettled 25,000 Indonesian transmigrants, as well as Timorese people, with similar programs. This land was often stolen from traditional land owners, many of whom still want their land rights recognized.

The Strategic Development Plan is being socialized at the same time that Parliament is considering several laws which will define land titling and when the State can take over someone's land. When considered together with the draft laws, the SDP appears part of a package that will allow the State to take private land and protect the powerful, but does not safeguard the land rights of vulnerable people.